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Debt consolidation often means bills pile higher, state official says

Contracting with a debt-consolidation service in Colorado may end up costing more than its worth, according to a report released last week by the Colorado Attorney General’s Office.

Data collected from Colorado’s 42 registered debt-settlement and debt-consolidation firms showed that fewer than 10 percent of consumers who signed on with these companies between 2006 and 2008 had paid off debt or completed agreements.

More than 10,000 Coloradans contracted with debt-consolidation services and paid an average of $495 for credit counseling and an average of $1,666 for debt settlement, the study showed. Consumers in credit counseling owed an average amount of $21,050, and those in debt-settlement plans owed an average of $30,788. An average contract term was nearly 41 months for credit counseling and 32 months for debt settlement, the study showed.

“As our data shows, debt settlement and credit counseling are not quick fixes,” Attorney General John Suthers said in a news release. “Consumers should be leery of any debt-management plan that encourages them to stop paying their creditors altogether.”

Mickie Rogers, owner of United Credit Services, 1226 N. Seventh St. in Grand Junction, said she sees plenty of consumers wracked with debt. Some of her customers have tried working with debt-consolidation companies, but they have experienced poor results.

Rogers said she offers counseling to consumers so they can increase credit scores, and does not offer debt-consolidation or debt-repayment plans.

“We’ve had several people call and say they had bad experiences where they pay all this money up front, and the (debt-consolidation companies) aren’t paying their bills,” Rogers said. “Then they manage their money, and they don’t pay on time. It ends up hurting their credit.”

Debt-settlement and loan-consolidation companies work with creditors in an attempt to reduce credit-card holders’ payments or offer customers a plan to pay their bills. Sometimes that means customers pay their bills to the debt-management company, which in turn pays creditors. By law, companies are not allowed to charge customers more than $50 per month and a $50 setup fee. Debt-settlement fees are capped at 18 percent of the total principal amount of the debt at the time of the agreement, the Attorney General’s Office said.

None of Colorado’s 42 registered debt-settlement and debt-consolidation companies lists an address on the Western Slope. Messages for comment that were left at a couple companies on the Front Range were not returned Friday. At least one company, Consumer Credit Counseling, also known as American Financial Solutions, has an office in Grand Junction, but customers must first sign up over the phone before getting a local appointment.

Colorado’s Uniform Debt Management Services Act required the companies to register with the state by July 1, 2008, follow all applicable laws and file annual reports. The act also limits the fees the companies can collect and allows consumers a three-day window to cancel their contracts.

A list of registered credit counselors, debt-settlement providers, consumer information and complaint forms is available at http://www.coloradoattorneygeneral.gov. Consumers with complaints should contact the Office of the Attorney General at 303-866-4494.